Critics Fault H-P's Board, Not Just CEO

As Hewlett-Packard Co.HPQ-0.33%'s shareholders cheered the possible ouster of Chief Executive Leo Apotheker, some critics warned the deeper problem may lie with the company's board.

ENLARGE

Some say H-P's board is to blame for the company's many missteps. CEO Leo Apotheker shown in March.
Associated Press

Just weeks ago, H-P's directors approved and publicly supported Mr. Apotheker's plan to remake the company despite a poor reception from H-P's investors. Now, people familiar with the matter say, they are debating whether to fire him.

The fumble comes about a year after the board came under criticism for the way it handled the investigation and dismissal of Mr. Apotheker's predecessor, Mark Hurd.

While corporate governance experts gave H-P's directors credit for what appeared to be a quick move to deal with Mr. Apotheker once it became clear he wasn't working out, they expressed concerns about their failure to set a clear direction for the company.

H-P's board is expected to oust CEO Leo Apotheker and replace him with former eBay CEO Meg Whitman today. Colin Barr and Marcelo Prince discuss whether a new strategy and a new CEO can save H-P. (Photo: AP.)

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"It's hard to think of another board that has failed as consistently as this one," said Nell Minow, a corporate-governance author and longtime shareholder activist. "The H-P board is a serial offender. If Apotheker's vision and execution failed, it is the fault of the board that selected him."

H-P declined to comment and an outside spokeswoman for the board wasn't immediately available for comment.

H-P's board has spent an extraordinary amount of time in the spotlight for questionable decision-making over the past half decade. The string of missteps has persisted despite two major shakeups in its ranks—one following Mr. Hurd's exit and another after a divisive investigation into board leaks in 2006.

"The board's caught in this infinite loop," said Harvard Business School management professor Rakesh Khurana. "They're searching for an identity in a rapidly changing market with new CEOs, and it's not clear that the board has yet solved its own issues."

Mr. Apotheker arrived last November—three months after H-P's board forced Mr. Hurd to resign amid concerns over his relationship with a female contractor to the company. Critics challenged the board over whether the firing was necessary, and again after it agreed to a $35 million exit package that didn't keep Mr. Hurd from joining competitor Oracle Corp.ORCL0.73% shortly after his departure.

Mr. Hurd joined H-P in 2005 following the ouster of his predecessor Carly Fiorina and a tumultuous proxy fight over H-P's acquisition of Compaq Computer Corp. That fight pitted members of the founding Hewlett and Packard families against Ms. Fiorina.

It didn't take long for a new problem to emerge. In 2006, a scandal erupted over "pretexting"—impersonating people to get their phone or financial records—amid a board-driven probe into possible press leaks by the company's own directors. That ultimately contributed to the departure of Patricia Dunn as H-P chairman.

H-P's board is meeting today to consider ousting CEO Leo Apotheker, just 10 months after he took over the tech giant and shortly after endorsing his plan to spinoff or sell its PC business. Don Clark and Mark Veverka discuss on The News Hub.

H-P's latest lineup of directors—which includes five chosen in January—doesn't bear the blame for all of that, but the history is heightening scrutiny of its current decisions.

Executives and recruiters in the industry questioned the decision to bring aboard Mr. Apotheker, who had run software company SAP AG and had little experience in H-P's main lines of business. Mr. Apotheker also spent only a short time atop SAP, leaving abruptly in February 2010, less than a year after taking over as sole CEO the previous May.

"It's pretty rare" to see a board force out a new CEO after less than a year, said Espen Eckbo, head of the Center for Corporate Governance at Dartmouth College's Tuck School of Business, referring to the H-P board's fast turnaround. To put the company back together, he said, the board needs to "come up with a consensus on the CEO recruiting strategy and where the basic value drivers are."

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